A UK company must normally have its annual accounts audited by an independent auditor. Audit exemption lets qualifying companies skip that requirement and file unaudited accounts instead, provided one of several statutory routes applies — most commonly qualifying as a “small” company on turnover, balance sheet and employee numbers, or having a parent company guarantee the subsidiary’s liabilities in place of an audit.
If your UK subsidiary has an overseas parent, two 2025 changes to audit rules probably affect you — and most overseas groups are getting at least one of them wrong. From April 6, 2025, the small company turnover and balance sheet thresholds rose sharply, pulling more subsidiaries into audit exemption eligibility on size grounds.
Separately, since the end of the Brexit transition period, the parent company guarantee exemption under section 479A of the Companies Act 2006 has only been available where the parent is established in the UK, not the European Economic Area (EEA). Groups that assume a European Union (EU) or EEA parent can still guarantee a UK subsidiary’s exemption are relying on a rule that stopped applying in January 2021.
This article covers the April 2025 size threshold uplift, why the section 479A parent guarantee exemption no longer works for EEA parents, and how the two rules interact when a UK subsidiary is assessing its audit exemption options.
Key Takeaways
From April 6, 2025, the small company thresholds rose to turnover not exceeding £15 million (up from £10.2 million) and balance sheet total not exceeding £7.5 million (up from £5.1 million).
Since IP completion day (December 31, 2020, the point at which EU law stopped applying in UK company law), the section 479A parent company guarantee exemption is only available where the parent undertaking, the company or other entity that controls the subsidiary, typically through majority voting rights or the right to appoint the board, is established under the law of the UK. EEA and EU parents no longer qualify.
A group can pass the new, higher size thresholds and still fail the audit exemption test entirely if the parent guarantee route is the one being relied on and the parent sits outside the UK.
The section 479C guarantee, the statutory declaration in which the parent guarantees all of the subsidiary's outstanding liabilities for the year, is filed at Companies House on Form AA06 and, once filed, cannot be revoked or removed until the subsidiary's liabilities are settled in full.
Overseas groups with UK subsidiaries often need a UK-incorporated intermediate holding company in the chain before a parent guarantee exemption becomes available again.
The April 2025 Threshold Uplift: What Actually Changed
The Companies (Accounts and Reports) (Amendment and Transitional Provision) Regulations 2024 (SI 2024/1303) raised the monetary size thresholds used to determine whether a UK company qualifies as small, medium-sized or large. The new limits apply for financial years beginning on or after April 6, 2025 and amend sections 382 and 383 of the Companies Act 2006. It is the first uplift to these thresholds since 2016.
A company qualifies as small and so falls into the small companies regime, the reduced accounting, audit and filing framework if it does not exceed at least two of the three limits. In its first financial year, meeting the conditions in that year is enough; after that, the conditions must be met in the current year and the one before, i.e., two consecutive financial years.
Under the new limits, a company is small if it does not exceed at least two of:
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Turnover
Not more than £15 million (up from £10.2 million)
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Balance sheet total
Not more than £7.5 million (up from £5.1 million)
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Average number of employees
Not more than 50
Medium-sized company limits rose on the same date, to £54 million turnover and £27 million balance sheet total, with the 250-employee test unchanged.
For groups, the relevant test — the group size test — is the group’s aggregate figures, not just the UK subsidiary’s own accounts.
Section 383 sets the group thresholds, assessed on either a net basis (after eliminating intra-group transactions) or a gross basis (before those adjustments).
For financial years beginning on or after April 6, 2025, a group is small if it does not exceed at least two of:
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Turnover
Not more than £15 million net or £18 million gross
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Balance sheet total
Not more than £7.5 million net or £9 million gross
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Average number of employees
Not more than 50
A group may assess one limit on a net basis and another on a gross basis, whichever combination is more favorable. Where a UK subsidiary sits inside a large overseas group, the group-wide numbers usually rule out small company status even where the UK entity itself looks small in isolation.
There is a one-off easement for the transition. Normally, qualifying as small requires meeting the size conditions in two consecutive years. For the first financial year to which the new thresholds apply, a company can retest the prior year’s actual figures against the new, higher thresholds — even though the old thresholds were the ones legally in force at the time. If the prior year would have passed under the new limits, both years count, and the company qualifies as small straight away, rather than waiting a further year to build up two consecutive years under the new thresholds.
Note this does not always mean immediate benefit: the new thresholds only bite for financial years that begin on or after April 6, 2025, so a company with an April 1 or January 1 year start does not reach its first eligible year end until the following cycle. A March 31 year-end company, for instance, cannot apply the new thresholds until its year ended March 31, 2027, because the year to March 31, 2026 began on April 1, 2025 — five days before the change took effect.
A few further points can override the analysis above, regardless of size or parent guarantee. Under section 384 of the Companies Act 2006, the small companies regime doesn’t apply at all to public companies, certain regulated entities (banks, insurers, MiFID firms), or any company that’s part of an “ineligible group” — a group containing a traded company or an FCA-authorized firm anywhere in its structure, even if every other member is small. And under section 476, members holding 10% or more of the issued share capital can require an audit anyway, even where the company otherwise qualifies for exemption on size or parent guarantee grounds — the notice must be given at least a month before the financial year ends.
Worked Example: Group Size Rules Overtaking the New Thresholds
A UK subsidiary of a German manufacturing group has standalone turnover of £9 million and a balance sheet total of £4 million, comfortably within the new £15 million and £7.5 million small company limits on its own figures. The wider group, however, has consolidated turnover of £210 million.
Without the group test: the subsidiary would qualify as small and could look at audit exemption on size grounds alone. With the group test correctly applied: the group’s £210 million turnover fails both the small and medium thresholds, so the UK subsidiary does not qualify as small — regardless of how far under the new limits its own accounts sit.
Please note that these figures are illustrative. The correct group size assessment depends on the group’s actual consolidated figures and how they are calculated.
This is the first place overseas groups go wrong: reading the higher 2025 thresholds as an automatic win for the UK subsidiary, without running the group-wide calculation that the size test requires.
The second place they go wrong is assuming that if size doesn’t get them exemption, a parent guarantee will — without checking where the parent is established.
Why Doesn't an EEA Parent's Guarantee Work Anymore
Section 479A of the Companies Act 2006 is the parent guarantee route to audit exemption. It lets a UK subsidiary avoid a statutory audit of its individual accounts, whatever its own size, provided its parent undertaking guarantees all the subsidiary’s outstanding liabilities for the financial year. The guarantee itself is given under the mechanism in section 479C and filed at Companies House on Form AA06. The route exists because the subsidiary’s figures are already audited at group level. Rather than auditing the same numbers twice, the law lets the parent stand behind the subsidiary’s liabilities instead, so the subsidiary’s own accounts go unaudited.
Before Brexit, that parent could be established anywhere in the EEA. Since accounting periods beginning on or after IP completion day (December 31, 2020), the exemption is only available where the parent is established under the law of the UK.
A UK subsidiary of a French, German, Irish or Dutch parent that relied on section 479A before 2021 lost that route the moment its parent’s country of incorporation stopped being “the UK” for this purpose. Nothing about the subsidiary changed. The law moved underneath it.
Where the group’s ultimate or intermediate parent is genuinely established under the law of a part of the UK, section 479A is unaffected — the guarantee still works exactly as before. The restriction only bites where the entity giving the guarantee sits outside the UK, which is precisely the structure most overseas-owned UK subsidiaries have by default.
What Section 479A Still Requires, Even With a UK Parent
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All members of the subsidiary agree to the exemption for that financial year.
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The UK parent undertaking gives a guarantee of all the subsidiary's outstanding liabilities under section 479C, filed at Companies House on Form AA06.
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The parent undertaking prepares audited consolidated accounts, and the subsidiary is included in them. If no parent in the chain produces consolidated accounts, the subsidiary cannot use this exemption at all.
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The parent discloses in those consolidated accounts that the subsidiary is exempt from audit of its individual accounts under section 479A.
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The directors deliver to the registrar, on or before the date the subsidiary's accounts for that year are filed: written notice of the members' agreement; the parent's section 479C guarantee statement (Form AA06); a copy of the parent's consolidated accounts; and a copy of the auditor's report on those accounts.
The Form AA06 guarantee is irrevocable once filed: it stays in force until the subsidiary’s liabilities for that year are settled in full, even if the group later decides an audit would have been the better choice. That is an open-ended contingent liability sitting on the parent’s balance sheet, and it is often overlooked when the guarantee is signed.
How Overseas Groups Fix This: Restructuring the Chain of Ownership
Where an overseas parent wants its UK subsidiary to have audit exemption available and the subsidiary fails the group size test, the practical options are limited. Waiting for the group to shrink below the thresholds is rarely realistic, and accepting the audit is often the right commercial answer where the group has only one UK entity.
The more common route is inserting a UK-incorporated intermediate holding company between the overseas parent and the UK trading subsidiary, so that the entity giving the section 479C guarantee is established under UK law.
This only works cleanly if the UK holding company itself prepares audited consolidated accounts that include the UK subsidiary; an unaudited UK holding company cannot give a guarantee that satisfies section 479A.
For groups with several UK entities, consolidating them under one UK holding company can open the exemption up for each of them, rather than testing every subsidiary separately against the size thresholds. The exemption is still claimed entity by entity, though — each subsidiary needs its own members’ agreement, its own Form AA06 and its own filing — and the holding company’s own consolidated accounts will require an audit, so the cost moves up the structure rather than disappearing.
Restructuring the chain of ownership has consequences beyond audit exemption — corporation tax group relief, substantial shareholding exemption, stamp duty on the share transfer, and the identity-verification and filing obligations that the Economic Crime and Corporate Transparency Act 2023 imposes on the directors and people with significant control of the new entity all need to be checked before a holding company is inserted, not after.
Worked Example: Inserting a UK Holding Company
A US parent owns a UK trading subsidiary directly. The subsidiary has turnover of £11 million — above the old £10.2 million small company limit but below the new £15 million limit — yet the US group’s consolidated turnover is £300 million, so the UK entity fails the group size test regardless of the 2025 uplift. The US parent cannot give a section 479A guarantee because it is not UK-established.
Without restructuring: the subsidiary requires a statutory audit every year, at a heavy typical cost depending on complexity. With a UK holding company inserted between the US parent and the UK subsidiary, preparing its own audited consolidated accounts: the UK subsidiary can claim exemption under section 479A, with only the new UK holding company’s consolidated accounts requiring audit — often at a lower combined cost than auditing the subsidiary alone, where the group has several UK entities to bring under one set of accounts.
These figures are illustrative. The correct comparison depends on the group’s actual structure and the number of UK entities involved.
To note: This is not a decision to make from a guidance note. Whether a UK holding company is worth inserting depends on the group’s tax profile, financing arrangements, and how many UK entities it has — get the structure wrong and the group can end up with an extra layer of UK company law and tax filing obligations without actually achieving audit exemption.
Frequently Asked Questions
No. An EU or wider EEA parent no longer qualifies, regardless of how the guarantee was structured before Brexit.
Only if that year began on or after April 6, 2025 — and the cutoff catches more companies than expected. A year starting April 1, 2025 misses it by five days, so a March 31 year-end company assesses the year to March 31, 2026 under the old limits and cannot use the new thresholds until the year ending March 31, 2027.
Not on its own. Size is one route to exemption, but a subsidiary that is part of a group must meet the group size test using consolidated or aggregated group figures, not just its own accounts. A subsidiary of a large overseas group can be small in isolation and still require an audit.
The Form AA06 guarantee cannot be revoked or removed once filed. It remains in force until the subsidiary’s liabilities for that financial year are settled in full, even if the company chooses to have an audit in a later year.
The Conclusion: What You Need to Do Now
If your UK subsidiary’s group turnover sits above the new thresholds, or the parent giving your section 479A guarantee is not UK-established, the exemption you were relying on may not be available for the year you are about to file.
This is not a scenario where a quick threshold check gives the right answer — the group size calculation and the parent’s place of establishment both need to be confirmed against your actual structure, not assumed from last year’s filing.
Claiming an exemption that doesn’t apply is not something Companies House will catch for you. The registrar checks that accounts are complete and correctly formatted, not that the company was actually entitled to the exemption it claimed — so an invalid claim usually surfaces later, and by then the accounts on the public record do not comply with the Act.
Correcting the position means commissioning the audit late and under time pressure, with a filing penalty if the revised accounts miss the deadline, and the directors carry responsibility for the non-compliant accounts in the meantime.
How Can We Help
If you need to establish whether your UK subsidiary’s exemption still stands and, if not, whether restructuring the ownership chain makes sense for your group, we can get you a clear answer before your filing deadline.
Our team will review your group’s consolidated financial statements against the April 2025 size thresholds, examine the ownership chain to establish whether the section 479A parent guarantee route is available, confirm whether your current audit exemption is valid, and — where it isn’t —model the cost and compliance impact of inserting a UK holding company or restructuring the chain.
